Block 268 LLC v. City of Hoboken Rent Leveling & Stabilization Board

Citations: 401 N.J. Super. 544; 951 A.2d 1098; 2006 N.J. Super. LEXIS 364

Court: New Jersey Superior Court Appellate Division; August 28, 2006; New Jersey; State Appellate Court

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The Court grants Plaintiff Block 268's motion for partial summary judgment on its First, Second, and Third Causes of Action against the City of Hoboken Rent Leveling and Stabilization Board, the City of Hoboken, and other defendants. The key legal issue is whether a residential property with rental units loses its exemption from rent control upon sale or conversion of units to condominiums under the Rent Control Exemption Act, N.J.S.A. 2A:42-84.1 to -84.6. The Court interprets the Act as clear and unambiguous, noting that legislative amendments have not addressed property sale or unit conversion. The Board's actions during a May 10, 2006 hearing were deemed arbitrary and outside its authority, leading to the granting of summary judgment.

Factually, Block 268 is a New Jersey LLC that owns residential buildings at 1500 Hudson Street and 1500 Washington Street, known as the Hudson Tea Buildings. These properties received a thirty-year exemption from rent control in 2000, effective until 2030. After multiple ownership changes, Block 268 acquired the property in 2004 and initiated a "Non-Eviction Plan" to convert rental apartments into condominiums while allowing existing tenants to remain under similar lease terms, leading to over 100 units currently available for rent.

The Perezes entered an eighteen-month lease for apartment unit 1-1 on February 3, 2004, which was to expire on August 31, 2005. The lease included a notice confirming the property’s exemption from Hoboken’s Rent Control Ordinance, which the Perezes acknowledged. Their initial rent was set at $2,825 per month.

The effective rent during the first lease term was $2,750, and the Perez Lease expired in August 2005, having been assigned to Block 268. The renewal sought an increase to $3,050, but on January 15, 2006, the Perezes opted not to renew and instead requested a legal rent calculation from the Rent Control Board, claiming their unit should be subject to rent control due to an exemption being voided upon the sale of the property. On January 26, 2006, the Board's Administrator, Ms. McLaughlin, denied the request, stating the unit was exempt from rent control under the Ordinance.

The Perezes appealed this decision on March 21, 2006, asserting that the exemption ended with the sale to Toll Brothers, Inc., and contested their base rent as $2,521. Block 268 responded, emphasizing that the property remained exempt under the Rent Control Exemption Act, despite the sale and condominium conversion. 

During a hearing on May 10, 2006, Mr. Perez represented the Perezes, arguing for rent control applicability. Block 268's attorney reiterated the exemption's validity under the Act and noted that no actions could impair it. The Board voted unanimously to support the Perezes' appeal, but did not provide reasoning for its decision. They determined the base rent for the Perez unit to be $2,750, to which Block 268 objected.

At a meeting on June 14, 2006, the Board approved a Resolution regarding the Perez appeal but, after Block 268 representatives left, made additional determinations that the Ordinance would apply to all units in the Property, potentially allowing other tenants to seek rent recalculations under the Ordinance.

On June 22, 2006, Block 268 initiated a Complaint in Lieu of a Prerogative Writs action aimed at vacating the Board’s Resolution from May 10, 2006, and actions taken on June 14, 2006, concerning a specific Property. By June 26, 2006, all parties had been served with the Summons and Complaint. Block 268 seeks partial summary judgment against the Board on three main counts: (1) a declaration affirming that the Property retains rent control exemptions under the Act until 2080; (2) an injunction preventing the Board from enforcing the Resolution or applying the Ordinance to the Property; and (3) vacating the Resolution and related decisions made on May 10, 2006. Alternatively, if the Court determines that the exemptions do not apply, Block 268 requests a recalculation of the Perezes’ rent under the Ordinance. The requested partial summary judgment would resolve all counts of the Complaint, which also includes claims of Equal Protection and Due Process. Block 268 asserts that the Court should review the Board’s decisions de novo, referencing relevant case law that supports this standard of review. The primary argument presented is that the Property is exempt from the Ordinance until 2030, based on the clear language of the statute, which specifies that multiple dwellings built after 1987 are exempt from rent control for a maximum of 30 years post-construction or the duration of the initial mortgage. Block 268 contends that the Property qualifies as a "multiple dwelling," having successfully applied for exemption in 2000, and argues that the Act does not permit the Board to invalidate the exemption. The Plaintiff emphasizes that determining the Legislature's intent is the Court's primary objective when interpreting statutes.

Block 268 argues that the intent of the Act, as stated in N.J.S.A 2A:42-84.5, is clear in prohibiting any municipality or political subdivision from diminishing or altering the exemption granted for multiple dwellings. The Plaintiff emphasizes that the Legislature aimed to enhance the marketability of such dwellings and create a stable environment for financing, construction, and marketing. Block 268 asserts that converting rental units into condominiums enhances marketability and that any municipal action to eliminate the exemption contradicts legislative intent.

The Plaintiff counters the Defendants' arguments, asserting that the exemption remains intact regardless of building sales or mortgage payoff, as it runs with the land. Acknowledgment from a Board attorney during a hearing supports this position, affirming that the exemption is tied to the building, not the owner. Although the Board's Resolution is limited to a specific unit, it claims the rent control Ordinance now applies to all units of the Property. Block 268 contends that this could lead to confusion for tenants and owners, affecting decisions on leases and property sales.

Furthermore, Block 268 argues that the Board’s action should be vacated due to State law preempting the Ordinance once the Court confirms the Property retains its exemption under the Act. The Plaintiff cites that State law prevails over conflicting municipal ordinances, as established in case law. The inconsistency of the Board's treatment of the Property—recognizing it as rental units under the Ordinance but not under the Act—is also highlighted, questioning the applicability of the Ordinance's terms to all dwelling units as defined therein.

Block 268 argues for the classification of its Property as a multiple dwelling under the Act, based on a comparison of definitions between the Act and the local Ordinance. The Act defines a multiple dwelling as a building with four or more rental units, while the Ordinance requires only one rental unit to qualify as a dwelling. Block 268 asserts that since the Property contains over 100 rental units, it qualifies as a multiple dwelling, and thus is entitled to maintain its exemptions, despite some units being converted to condominiums. Block 268 critiques the Board’s position that the Property loses its multiple dwelling status post-conversion, arguing it cannot simultaneously be classified as a dwelling under the Ordinance while being denied multiple dwelling status under the Act. Additionally, Block 268 claims that state law preempts local ordinances, further supporting their entitlement to exemptions until 2030. 

In contrast, the Board contends that the Act’s exemption does not transfer upon the Property's conversion to condominiums, arguing that the legislative intent focuses on protecting initial investments in new construction. The Board cites specific statutory references to mortgage amortization periods as evidence that the exemption exists solely to safeguard the property’s value against rent control impacts during its rental phase. It maintains that the legislative intent has been fulfilled through the Property's conversion, which increased its value significantly and rendered the exemption moot after the initial mortgage was satisfied through the sale to Toll Brothers. The Board concludes that Block 268 forfeited its entitlement to the exemption upon the conversion of the Property.

The Board contends that granting Block 268 the exemption would create an unreasonable advantage for owners of newly constructed rental units, arguing that the exemption should not extend for thirty years without justification. They assert that such a long exemption threatens significant depreciation of the Property’s value due to impending rent controls. The Board emphasizes that the Act’s primary intent is to safeguard the initial investment in new construction, which is no longer applicable since Block 268 has converted the Property to condominiums, significantly increasing its value. They warn that if the Court accepts Block 268’s reasoning, developers will exploit this perceived loophole, initially labeling their units as apartments to secure exemptions and subsequently converting them to condominiums to profit from the rent control exemption. The Board argues that this undermines the Act’s goal of promoting construction and protecting property marketability, suggesting that legislative provisions should have explicitly eliminated exemptions upon conversion to condominiums. 

Additionally, the Board dismisses concerns that removing the exemption will deter development in Hoboken, asserting that the city's affluent status and proximity to New York City ensure ongoing profitability for developers, regardless of the exemption status.

Defendant McLaughlin argues that Block 268's motion for summary judgment should be dismissed as premature under Rule 4:46-1, noting that the motion was filed too soon after receiving the complaint. 

The Perezes echo the Board’s argument, asserting that the Property lost its exemption status upon sale and conversion to condominiums. They highlight that the Rent Control Exemption Act aims to incentivize rental housing expansion, which Block 268's actions contradict by reducing rental unit availability.

The Perezes contend that Block 268 has failed to comply with the Ordinance and has not proven its exemption from rent control. They highlight an authorized representative's testimony indicating that the initial mortgage on the building was fully paid off, arguing that this disqualifies Block 268 from exemption under rent control laws. In response, Block 268 asserts that the Board misinterprets the Act, claiming that its language clearly addresses the situation by exempting "multiple dwellings" constructed after 1987 from rent control for thirty years or the duration of an initial mortgage's amortization, whichever is shorter. Block 268 argues that changes in ownership, such as the conversion of rental units to condominiums, do not affect this exemption and that the Act's intent is to encourage the marketability of multiple dwellings rather than solely protect initial investments. Furthermore, Block 268 emphasizes that the Legislature intended to prevent local entities from interfering with the exemptions granted by the Act. Relevant legal provisions include N.J.S.A. 2A:42-84.2, which outlines the applicability of municipal rent control ordinances, and N.J.S.A. 2A:42-84.5, which clarifies the legislative intent regarding exemptions from rent control.

The New Jersey Legislature recognizes the need to increase newly constructed rental housing for public welfare. To encourage this construction, it enacted P.L.1987, c. 153, exempting new rental multiple dwelling units from municipal rent control to prevent deterrence of such development. Initially temporary for five years, this exemption was extended for another five years in 1992 and made permanent in 1997. The financing method for new apartments transitioned from project-based mortgage loans to Real Estate Investment Trusts (REITs) and public companies, which use comprehensive financing instead of individual mortgages. To clarify whether these new financing methods qualify for rent control exemptions, P.L.1999, c. 291 amended P.L.1987, c. 153 to specify a 30-year exemption period for new constructions without initial mortgage financing, except for certain rent control ordinances. The act aims to encourage multiple dwellings' construction and maintain their marketability by ensuring legal rent control exemptions are preserved during the exemption period. The analysis concludes that the interpretation of the Act involves legal questions to be reviewed by the court, affirming that local entities cannot alter the rent control exemption established by the Act.

The Act provides a broad exemption without outlining specific exceptions. Since its enactment in 1987, the Legislature has amended the Act multiple times—extending its duration in 1992, making it permanent in 1997, and addressing REIT-related construction in 1999—without introducing any exceptions to the exemption. The Legislature's intent was to promote the construction of multiple dwellings, ensuring that the exemptions remain intact during the exemption period to foster a stable environment for financing, construction, and marketing. The Court concludes that the Legislature's reaffirmation of the Act preempts any Board attempts to limit the exemption. Future legislative amendments may address current condominium conversion concerns in Hoboken, with potential options including applying rent control selectively to rental units in hybrid buildings, extending rent control to both rental and condominium units, or geographically tailoring exemptions based on economic conditions. The Court emphasizes that any legislative changes are beyond its purview and rests with the State Senate and General Assembly. Ultimately, the Court finds the Act's language to be clear and unambiguous, mandating that the Property is exempt from rent control, thus granting Plaintiff Block 268’s motion for partial summary judgment.